Energy East’s death dims chances of Bear Head LNG facility

Natural gas was supposed to be transported to a proposed Bear Head LNG plant in a pipeline that would run alongside the now-abandoned Energy East pipeline. (CONTRIBUTED)

The death of the Energy East pipeline further jeopardizes a planned multibillion-dollar liquefied natural gas export facility on the Strait of Canso.

“I wouldn’t call it a snowball’s chance in hell,” said Dirk Lever, head of research at Calgary’s AltaCorp Capital Inc., of the likelihood of Bear Head LNG’s proposed export facility being built.

“But it’s close to it.”

Bear Head LNG proposes to get gas to its plant via a 1,600-kilometre pipeline from North Bay, Ont. to St. John, N.B. adjacent to TransCanada Corp’s proposed Energy East pipeline. On Oct. 5 TransCanada announced it was terminating Energy East.

Bear Head strategic and regulatory affairs adviser Paul McLean said Wednesday that the termination of Energy East doesn’t change their plans and won’t make a natural gas pipeline more expensive.

But McLean’s company isn’t proposing to pay for the pipeline.

They’re proposing that TransCanada will team up with a producer of natural gas in Western Canada to pay for the pipeline they need to supply their proposed facility.

“A Western-basin producer will sign on with TransCanada,” said McLean.

“. . . Everything is really contingent on securing a path of natural gas to the facility.”

None have signed on thus far and TransCanada did not return a call for comment on whether they are planning to build a pipeline to get gas to a plant that doesn’t have financing secured or agreements with overseas purchasers of the gas it proposes to liquefy.

Bear Head hasn’t given an estimate of the pipeline’s cost. However, Enbridge is predicting its 1,660-km Line 3 oil pipeline from Hardistry, Alta., to Superior, Wis., will cost $8.9 billion Canadian.

Then there would be the estimated $5-billion cost of building Bear Head’s LNG export facility.

“This is a company that really doesn’t have a lot of capital behind it,” said Lever.

“They have a project and they want someone else to fund it.”

Bear Head LNG is owned by Australia-based Liquefied Natural Gas Ltd. That company is also proposing an export terminal for Lake Charles, Louisiana, under the name Magnolia LNG.

The company’s stock was trading at 42 cents a share on the Australian Stock Exchange on Tuesday, down from 57 cents a year ago.

Liquefied Natural Gas Ltd. lost just over $29 million Canadian in the year leading up to its audited June financial statement. That was down from a $112-million loss the year before. The company has $57 million in assets.

“It is not lost on me that the dominant question on everyone's mind is timing — when can we expect offtake sales and when do we expect to take (final investment decision) on our projects?” wrote the company’s chief executive officer Gregory Vesey in his June report to shareholders.

“On these points, I cannot provide absolute certainty . . .”

The June shareholders report warns that the company only has sufficient cash reserves to continue until mid-2018. If the current trend of being unable to sell offtake agreements on natural gas for its two proposed projects holds, the report says the company will have to either sell shares, sell one of its projects or find a way to make money off the natural gas liquefaction technology it holds the rights to.

Liquefied Natural Gas Ltd. bought the Bear Head project for $11 million from Anadarko Petroleum Corp. in 2014. Anadarko had spent $100 million on a proposed natural gas import facility on the site — pouring foundations for two large LNG tanks and getting regulatory approvals.

Anadarko mothballed the project in 2007.

According to the province’s online property database, Bear Head owns 278 acres in the Point Tupper Industrial Park with an assessed value of $10.3 million.

The majority of it was obtained by Liquefied Natural Gas when it bought the project from Anadarko. However Nova Scotia Business Inc. sold 72.42 acres to the company last year for $450,000

“There were milestones we jointly identified that if we didn’t meet there would be financial penalties (related to the land),” said McLean.

“To my knowledge we have achieved all the milestones we jointly agreed to.”

For its part, NSBI spokeswoman Marly Somers said the nature of those conditions are confidential.